Why clients will shrug off HSBC’s misdeeds

History says scandals rarely prompt customers to switch banks

By

IanSalisbury

It has all the elements of a public relations nightmare, with just a dash of James Bond: Mexican drug cartels, Middle Eastern intrigue, a mysterious branch in the Cayman Islands. And yet experts say it’s unlikely the scandal involving HSBC Holdings
US:HBCHSBA, +1.40%0005, -2.45%
will push American customers to leave the bank.

JuliusKielaitis / Shutterstock.com

On Monday, the U.K.-based bank agreed to pay $1.9 billion to settle charges by U.S. authorities it ignored money laundering and permitted transactions between its clients and several blacklisted nations. While the company said it has cleaned up its act over the past several years and will continue to cooperate with regulatory and law enforcement authorities, consumer advocates say the case highlights yet another case of a Wall Street bank with dodgy compliance policies in place.

Not that customers are likely to be much moved by the revelations. Research done in the wake of the financial crisis of 2008 has shown that even when customers complain about their bank’s behavior they rarely act. That’s partly because banks often impose long wait times to process transfers, and tack on extra departure fees, for those wanting to leave, according a study by the Consumers Union, a nonprofit. Another impediment to leaving: the difficulty of changing electronic banking arrangements like direct deposits. “They make your account more convenient, but when you want to move it takes time,” says Consumers Union staff attorney Suzanne Martindale.

As a result, experts expect HSBC to keep most of its customers. “I don’t think it’s going to hurt them much,” says Rajeev Batra, a marketing professor at the University of Michigan’s business school. While HSBC is an international giant, its presence in the U.S. is relatively small, with about 300 branches and 3 million customers in cosmopolitan areas like California, Washington D.C. and Florida. These are likely affluent people who want to be able to, say, get a mortgage in a foreign country. While these people mightn’t laud the company’s behavior, the alleged wrongdoing doesn’t obviously affect them or the kinds of business they plan to conduct. “I don’t think the linkage is that strong,” Batra says.

It’s not as though customers will never switch, of course. One recent organized effort, last year’s Bank Transfer Day, did meet with modest success, prompting thousands of disgruntled customers to switch from big national banks to credit unions. One reason was the backlash against a highly publicized -- and ultimately abandoned -- effort by Bank of America to tack a $5 monthly fee onto debit cards. In other words, customers’ immediate self interest, not moral outrage, was at stake. “What prompts people to move is when they previously had free checking, now they don’t,” says Bankrate.com Senior Financial Analyst Greg McBride.

Even if most customers won’t up and march out the door over an ethics issue, getting skewered in public can hurt business, just in less dramatic ways, according to Columbia Business School professor Olivier Toubia. He says research he’s currently conducting hints that, while existing customers may shrug off tales of misdeeds, prospective ones who don’t face the hassle factor might not. He found would-be customers tend to be far less responsive to pitches for products like credit cards and mortgages when they harbor doubts about an institution’s integrity – even when they see attractive terms.

“People don’t take those offers,” he says. “They just don’t trust them.”

Mortgage Rates

Powered by

This advertisement is provided by Bankrate, which compiles rate data from more than 4,800 financial institutions. Bankrate is paid by financial institutions whenever users click on display advertisements or on rate table listings enhanced with features like logos, navigation links, and toll free numbers. Dow Jones receives a share of these revenues when users click on a paid placement.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.